a) Types of economies

• define a free market economy

• an economy where resources are allocated according to the laws of supply and demand

• state which economy Adam Smith believed

• explain why Adam Smith believed in this type of economy

• free market economy

• he believed that the economy functions best when private individuals work in their self-interest

• state which economy Frederich Hayek believed in

• explain why Frederich Hayek believed in this economy

• free market economy

• he believed there were information gaps in command economies

  • → caused differences in what the people needed and what central planners believed they needed

  • → caused shortages and surpluses of resources

• define a mixed economy

• an economy where the allocation of resources is controlled by the laws of supply and demand and the government intervenes to eliminate market failure

• define a command economy

• an economy where the state owns all the resources and the government controls their allocation

• state what economy Karl Marx believed in

• explain why

• command economy

• he believed capitalists exploit workers in a free market economy → the state should

  • distribute the means of production between workers

  • become the central planner → they control the allocation of resources